Online affiliate marketing is a proven way in which brands and marketers can drive sales, transactions, and awareness about their products through a third party partner. The affiliate marketing gurus advocate the benefits of this performance-based tactic as an opportunity for advertisers to pay only for proven results. At the same time however, seasoned marketers warn that its cost-benefit analysis does not always pan out. The purpose of this article is to present a holistic overview of online affiliate marketing and determine its main benefits and disadvantages. Read ahead to identify whether online affiliate programs are a method that you want to utilize in your marketing efforts.
How it began
The early advertisers utilizing the affiliate marketing tactic included CDNOW and Amazon. In 1994, CDNOW launched a program with music-related websites. Sites that reviewed a particular album would also host a link to CDNOW where they could purchase this album. Two years later, Amazon started its Associates Program. The idea was that publishers would place banner and text ads for different products available on Amazon on their websites. When readers clicked through to Amazon and purchased the item, the publisher received a payment. To date, Amazon claims to have over 1 million affiliates worldwide. Since then, multiple companies have utilized the affiliate marketing tactic in their efforts and the field continues to grow.
According to the Internet Statistics Compendium from 2007, adult, gambling, retail industries, and file-sharing are currently the most active sectors for affiliate marketing, but travel, finance, and mobile phones are expected to grow as well. As an example, one of the most recent success stories include Debenhams' campaign. The second largest department store chain in the U.K. executed a mobile coupon trial with two popular affiliate sites, VoucherCloud and MyVoucherCodes. Although Debenhams used multiple channels to market the promotion, it was the affiliate marketing that led in results, driving 57 percent of in-store sales revenue. Debenhams continues to experiment with the online affiliate marketing space. It has recently introduced the opportunity for affiliates to use video content within its ads.
Definition and execution
So, what exactly is online affiliate marketing? It is a partnership between two sides -- the advertisers whose goal is to promote their products, and the publishers who are owners of online platforms (affiliates). The affiliate commits to promoting the advertiser's product or service through a link or a banner ad placed on their website. In exchange, the merchant commits to paying a certain commission to the affiliate. The amount of the commission is dependent on the payment model that the partners have previously agreed upon.
There are multiple types of compensation models for affiliate marketing. Depending on the advertiser's goals, the relationship between them and the affiliates can be based on revenue-share, CPA (cost-per-action), CPL (cost-per-lead or online lead generation where the advertiser pays for a sign-up from a consumer who is interested in the offer), CPC (cost-per-click) and CPM (cost-per-thousand, where publisher displays the advertising on his or her website, and receives payment based impressions). Some partnerships are based solely on one payment model while others employ a mix of a few, for example CPA and CPL models can be combined.
To begin an online affiliate marketing program, the advertiser needs to decide on the logistics of the execution. The advertiser can run affiliate programs in-house, wherein it has to identify potential affiliates, use a specific software to track the progress of the program, and send out the payments. This can be a very time-consuming process with each of the steps requiring significant man-hours and a dedicated team. Identification of the affiliates themselves is a very complicated process. Affiliates fall within various categories and can be anything from a personal website, to an online newsletter coupon or rebate website, to a shopping portal, and so on. There are no industry-wide standards for the categorization of the affiliates.
